Americans really have to learn how to manage debt. Because no matter what the economic situation is, we will always use debt. That is just how things are in our society. We rely heavily on credit cards for various purchases. In fact, one article revealed that more than 90 million Americans are afraid they will max out their cards.
There are only two reasons for them to feel this way. One is they have a low credit limit – which is not really common nowadays. The other reason, and the most dangerous one, is that they already have a high balance on these cards.
What makes things worse is the fact that Americans do not just have credit cards to worry about. Most of us who want to own a home borrow money to buy one. And mortgage usually cost us hundreds of thousands. You also have student loans and car loans to worry about.
As you can see, credit is very much ingrained in the way we live. It is convenient to use it after all. But that convenience can lead us to abuse its use. And that is what we need to be careful with.
Fortunately, there are specific steps that you can follow to manage debt. If you really have to use it, then it is best to learn how to do it properly. Do not let it ruin your financial future. Because if you abuse it, that is what it will lead to.
5 steps that will help you manage debt
Managing your debts is not that complicated. But it will take consistent effort. Even if you are in a good financial position right now, that can quickly change. When life happens, you don’t know what it will throw your way. This is why you need to constantly be cautious of how you use your finances and manage debt.
So what are the 5 steps that will help you manage your multiple debts? These steps can be applied regardless of how much debt you have.
Know how much you owe
The first step is to always know how much you owe. This will help you stay in control of your situation. According to statistics, the average debt is $5,700. And this does not include mortgages. If you have a home loan, the average will go up by hundreds of thousands.
You need to take note of all your debts by listing how much you owe and the various details about each. Who is the creditor or lender? When is the due date? What is the monthly payment requirement? These are important details that will help you stay on top of your debt situation. If you know the problem that you have to face, it will be easier for you to be one step ahead of it with a solution.
Look at your finances
After taking into account your debts, it is time to look at your payment capabilities. You need to look at your current financial situation. There are two things that you need to look into.
The first is your income. This is the source of funds for all your payments each month. It is what you need to consider to set up your lifestyle. You need to focus on your net income – not the gross income. That means the money you take home after taxes. If you use your gross income a basis, you will find your budget falling short all the time.
The second thing that you have to consider is your expenses. Obviously, your income will not be used only for your debt payments. These expenses include food, groceries, shelter, transportation, etc. List your expenses according to priority. Anything that is not your priority will have to be cut off.
The goal in this step is to make sure that you have enough money to pay for your debts and the expenses you need to make to survive.
Research your debt relief options
The third step to managing debt properly is to get to know your debt relief options. If you can afford it, you may be thinking that you don’t really need a debt solution. But the thing is, there are options that will allow you to pay off your debt faster and save money in the process.
You need to figure out what that solution is. You want to use it as early as possible so you can solve your debt issues. Do your research because there are many options out there. Make sure you understand each option well. There is usually one solution that perfectly fits your financial situation – making your monthly payments affordable. If you have the right debt relief program, paying off your debts will not feel like a burden.
Realign your budget plan
The fourth thing that you have to do to manage debt is to change your budget plan. If you don’t have one, then you need to learn how to budget your money. You may be in a tough financial situation because you don’t have one.
If you really want to control your finances, this budget plan will help you do that. And if you are paying off your debts, your monthly budget should be aligned with your debt solution too. This will ensure that you have the finances to fund your debt payments.
Commit to your repayment plan
The final step in managing your debt properly is by committing to your repayment plan. Whatever debt solution you chose and the budget plan that you have set for yourself, it is very important for you to follow through. All the plans you made, the research, and other preparations will be for nothing if you cannot follow it.
Getting out of debt or reaching any financial goal does not happen overnight. You need to be consistent in your efforts. There will be times when you will face temptations to deviate from your plans. But you have to resist and stick to the plan.
You have to discipline yourself to prioritize what’s important. You have to control your urges and keep yourself from making unnecessary expenses. Learn how to use credit wisely so you can take advantage of its benefits. It gives you access to opportunities that can help build your net worth – but only if you know how to pay it back.
Benefits of managing your debt properly
If you follow all 5 steps, it should be not difficult for you to manage debt no matter how much you owe. But that’s not just the benefit that you will get. If you learn how to use credit wisely, it will help you achieve two things that will make it easier to improve your life.
More control
First is more control. If you follow the 5 steps to manage debt, you will always have a complete overview of your financial situation. It’s not just your debt. It will include the totality of your financial situation. With this knowledge, you will feel more in control of your finances. That will give you the confidence to make decisions about your financial transactions. It will also increase the chances that you will make the right decisions every time.
Less stress
Stress is a part of life. It is a natural reaction that we have to help us survive. But the thing is, there is a way to keep our stress levels low. Sometimes, we feel stressed because we feel uncertain. We have no idea what will happen. However, if you know your finances and have full control over your debts, things will not seem uncertain anymore.
When you feel less stressed about your finances, it will leave your mind clear. Your emotions will not be all over the place. Again, that will increase the chances of you making the right decisions about your finances.